Fitch cuts Australia, Indonesia, China and Korea growth outlook

21-Sep-2021 Intellasia | Capital | 5:02 AM Print This Post

Tighter restrictions to contain the outbreak of the Delta variant of the coronavirus have led to slowing economic activities, with Fitch Ratings slashing its growth outlook for Australia, Indonesia, South Korea and China.

The American rating agency on Friday trimmed its growth outlook on emerging markets to 7.1 percent from the 7.3 percent estimated previously. When excluding China, the combined GDP of emerging markets is projected to grow by 5.8%, just 50 basis points above the estimated growth for developed economies the narrowest gap in six years.

“This partly reflects a weaker macro policy response than in developed economies as well as a slower vaccine rollout,” Fitch said, adding that a slowdown in China exacerbates the weakening activities in emerging Asian economies.

Impact of slowing China

“China was always expected to slow after its impressive rebound from the pandemic but recent data have been weaker than expected. This partly reflects new restrictions imposed to suppress coronavirus outbreaks, but the main factor weighing on the outlook is the slowdown in the property sector,” Fitch explained.

The rating agency, one of the so-called “Big Three”, lowered its outlook on China’s economy, pencilling full-year growth at 8.1%, compared with the 8.4 percent previously estimated.

“The slowdown in China will have important trade multiplier impacts, particularly in emerging Asia. In addition, the China property slowdown will take a toll on global commodity demand,” Fitch warned.

Australia growth slashed the most

Compared with other economies, Fitch lowered its outlook on Australia the most, now projecting a 3.7 percent expansion compared with 5.8 percent previously.

“The rapid spread of the Delta variant in June-August has forced the authorities to re-impose strict lockdowns in parts of the country. Australia’s initial strategy of Covid-19 elimination has forced the authorities to rely on economically disruptive lockdowns given the low inoculation rate,” said Fitch.

The nation’s authorities have since changed their strategy, aiming to relax restrictions once the inoculation rate reaches 80 percent a yardstick which Fitch estimates will be met by November, paving the way for limited rebound in the final quarter of the year.

“We expect that 3Q21 GDP will have dipped sharply; 4Q21 GDP should rebound on an easing of restrictions, but the pick-up in growth will nevertheless be held back by a cautious transition towards a ‘living with Covid’ strategy and lingering restrictions in parts of the country,” the rating firm summarised.

Indonesia reopening “bumpy”

Indonesia, which recorded the highest number of Covid cases in Asia back in July, remains lagging behind in terms of inoculation, making the economic reopening “likely to be gradual and bumpy,” Fitch stated.

“A severe Covid-19 outbreak in June and July will have thrown the economy back into contraction in 3Q21,” Fitch said, adding that easing restrictions this month should enable economic rebound in the October-December quarter.

Elevated commodity prices have propped Indonesian exports and made its currency less vulnerable to swings in market sentiments, although domestic demand remains fragile. For the full year, the rating agency cut the country’s GDP growth projection to 3.2 percent from 4.8%.

South Korea weighed by Southeast Asia’s Covid

Meanwhile, the consequences of Delta-variant spread and mobility restrictions in South Korea has been less severe than foreseen by analysts, with domestic demand still holding up relatively well.

Fitch noted that the larger effect on South Korea industries might come from supply chain disruptions in Southeast Asia as electronics and automobiles parts manufacturers in Vietnam, Malaysia and Thailand were either suspended or operating with reduced shifts due to the Delta-variant outbreak.

“We expect GDP growth to lose momentum on a sequential basis in 3Q21. Nevertheless, the fast pace of the vaccine rollout means that prospects for the economy heading into 4Q21 and 2022 remain favourable,” Fitch said, estimating full year growth at 4 percent compared with 4.5 percent previously.

The relatively solid momentum of South Korea’s recovery means that the Bank of Korea (BoK) can focus on tackling surging property prices and household debt, Fitch viewed, estimating the BoK to raise rates by another 25 basis points before the end of the year, following its August rate hike.


Category: Indonesia

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